Five New Year’s resolutions to help clients get on top of finances

These include: sorting old pensions, starting to save for children, writing a will, making the most of their cash and beating the tax hikes with individual savings accounts (Isas) and pensions.

Laura Suter, head of personal finance at AJ Bell, said: “January is a month where most people stay in, shun socialising and have a bit of spare time on their hands, so it’s the ideal time to tackle some of that boring life admin that you’ve been putting off. 

“The bonus is that you could make a decent amount of money from tackling some of these tasks, which is often much-needed at the start of the year.”

Sort old pensions

One of the first tasks is to track down any old pensions that individuals have lost track of, Suter explained. 

Just double check before you transfer any old pensions whether they have any guarantees attached.

According to the Department for Work and Pensions, people switch jobs on average 11 times during their careers – which means a lot of different pensions to keep track of. 

It’s estimated there could be 1.6mn ‘lost’ pension pots in the UK, with each one being worth an average of £13,000 per pot.

“So, it’s worth digging out your old paperwork,” Suter said.

“We’ve now had 10 years of auto-enrolment in the UK. This works on an opt-out basis, meaning that unless you deliberately decide not to save into a pension your employer must put one in place, subject to a few conditions. 

“Thanks to this landmark policy, private sector workers are now paying over £60bn a year into their pensions, a 50 per cent increase on a decade ago.”

Although it has dramatically increased the amount individuals save for retirement, it also means more pensions to keep track of. 

Most people will have a new pension set up for them with every new employer. 

Consolidating them together could make them much more manageable, as well as giving a better financial return.

“Your first port of call is finding any old paperwork that will tell you where your pension is and how to log-on to see its value and transfer it,” she said. 

Saving on behalf of a child is a great way to give them a financial head-start in life.

Firstly, knowing how much an individual has saved in total will help them work out how much they might need to save in the future, Suter explained.

Secondly, once any old defined contribution funds are located, people can consider combining them with their current workplace pension or moving them to a Sipp. 

“This will make your pension easier to monitor and manage, but also means you could benefit from lower charges, greater investment choice and more flexibility when you decide to access your fund,” she said.

“Just double check before you transfer any old pensions whether they have any guarantees attached, as these could be lost if you switch to a new provider.”

Start saving for children

Another thing clients can think of doing is opening a savings account for their children.

Saving small amounts when children are little can add up, and help pay for things such as university, buying a car or a house deposit in the future.

If someone managed to save £100 a year every year since a child was born, they could have £3,000 put away when they turn 18, assuming it’s invested and gets 5 per cent a year growth after fees. 

Putting away £50 a month would equal more than £18,000 by the time they turn 18.

According to figures by HM Revenue & Customs, lots of people default to saving in a cash account for their children, with around £7 in every £10 paid into a junior Isa going in cash savings, rather than a stocks and shares Jisa.

“But because money earmarked for a child when they turn 18 has such a long time to grow, it’s worth considering investing instead," Suter said.

“Children are ideally placed to ride out the ups and downs of the stock market in search of better long-term returns. Their stocks and shares Jisa account can be managed by an adult, alongside their own Isa portfolio.”

“It is also worth noting that despite rising interest rates, the best cash Jisa accounts still only pay around 3.5 per cent. 

“That’s well below the rate of inflation and much worse than the best fixed rates available to adults, with some accounts paying close to 5 per cent on a two-year fixed term deposit, according to Moneyfacts.”

In a Junior Isa, returns are free from income and capital gains tax, and it can be rolled over into an adult Isa when they turn 18 and save the child from any additional tax on their investments when they grow up.

Write a will

In the new year, people should also start thinking about writing a will, Suter said.

She said: “No one wants to think about death, which is why so many people put off writing a will. But lots of people wrongly assume the assets will go to different people when they die, which is why it’s crucial to ensure your affairs are in order.”

One example is if an individual is not married, then their partner is not automatically entitled to any of the estate when they die, regardless of how long they have been together. 

“It’s particularly key to bear this in mind if you own the home that your partner, and potentially step-children, live in,” she said.

“It’s a relatively painless process to get a will: there are some kits that let you do it yourself or you can go to a professional who will guide you through the process. 

“If you go down the DIY route you need to make sure the will is legally binding, otherwise your efforts will be in vain.”

Make the most of your cash

The Bank of England recently announced another interest rate hike, taking the UK base rate to another 14-year high of 3.5 per cent. 

Those in their 20s and early 30s will never have seen rates this high and rising rates are good news for savers, although anyone with money in savings cannot sit back and expect that extra interest will be added to their account, they have to go hunting for it.

“Lots of people have savings languishing in current accounts or old savings accounts earning almost nothing,” she said.

“If that’s you then the new year could be the time to take advantage of rising rates. If you put £10,000 into a five-year fixed-term deposit account at the best available at the time of writing then you’d have £12,702 at the end of the term if you save all the annual interest.”

Suter explained that some people will have been waiting to see what happened to interest rates in 2022, perhaps leaving their money in an easy access account or current account. 

“If that’s the case, then it is probably time to start looking for a fixed-rate if you can lock the money away for longer,” she said.

“We’re likely to reach a peak in base rates sometime next year, and many banks will already have factored in future rate hikes so cash savings rates may not improve that much further unless there’s a surprise and base rate ends up going even higher than expected.”

The bad news for savers is that inflation is sky high and although it may now have peaked, no savings account is paying enough to keep pace with inflation. 

This means that any money in cash is losing value in real terms.

Beat the tax hikes with your ISA and pension

The UK government is now onto its fourth chancellor of the year, after Jeremy Hunt replaced Kwasi Kwarteng.

“Turnover in the Treasury hot seat came with fiscal policy U-turns aplenty, and investors could be forgiven for losing track of quite where the government landed on how much tax we’ll all pay,” she said.

“Ultimately, what people need to know is that the system is set to become less generous, with the taxman taking a bigger bite out of our earnings and investment income. That makes it doubly important that we all take advantage of legitimate tax shelters like Isa and pensions.”

Investors are concerned about the tax rises coming, with 64 per cent of AJ Bell customers expecting to pay more tax next year because of recent government changes.

This is according to a survey of 2,650 AJ Bell platform customers carried out in December 2022.

Anyone can put up to £20,000 a year into an Isa and most people have a £40,000 annual limit for their pension. 

On top of this, anyone with children can open a Junior Isa and put up to £9,000 a year into it. 

“Make the most of these allowances to shield money from the taxman and look into ‘Bed and Isa’ transactions to make use of your capital gains tax allowance, which will be slashed to just £6,000 in April and £3,000 in 2024,” Suter said.

“Likewise, the tax-free dividend allowance will be cut in half in April next year, and then again in 2024. 

"It will mean investors can take just £500 in dividend income before paying tax from April 2024, so start planning now if this is going to land you with a big tax bill. If you choose to put dividend-paying investments into an Isa then it is likely to involve selling and buying the shares or funds, and any gains will be taxable.”

sonia.rach@ft.com 

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